The Public Choice Perspective - James Buchanan
Introduction
Public choice is not
a method
a set of tools
Public choice is a perspective on politics that emerges from the methods and tools of economics.
Elements in the public choice perspective
Generalized catallactics approach to economics
Homo economicus postulate concerning individual behavior
Catallaxy, or economics as the science of exchanges
What should economists do?
Remove the maximizing paradigm from its dominant place in economics
Quit defining our science in terms of the scarcity constraint
Stop worrying so much about the allocation of resources and the efficiency
Instead, concentrate on the origins, properties and institutions of exchange.
Catallaxy draws our attention to the process of exchange.
It introduces the principle of spontaneous order.
Complex exchange is the contractual agreement that goes beyond the two person, two commodity barter.
So it shifts to all processes of voluntary agreement among persons.
From this shift, the distinction between economics and politics emerges.
But we shouldn't draw lines between markets and government.
Collective action is modeled within individual decision makers.
Politics is the realm of non voluntary relationships.
Those involving power or coercion.
In perfect competition, there is no power of one person over another.
So in this context, "economic power" means nothing.
However, rents do arise in the real world, and coercion does arise.
This behavior can be analyzed.
Normative implications: voluntary exchange is valued positively while coercion is valued negatively.
Substitution between these is technologically feasible.
How does one improve a market?
By facilitating the exchange process.
Not by rearranging final outcomes.
The constitutional perspective says that to improve politics, it is necessary to improve the rules.
Improvement does not lie in morally superior "public interest".
A game is described by its rules, and a better game is produced only by changing the rules.
The Calculus of Consent: an economic theory of political constitutions.
Homo economicus
Individuals must be modeled as seeking to further their own self interest.
In doing this, they unintentionally generate results that serve the overall social interest.
But why didn't 19th century economists label politics as utility maximizers?
Their implicit presumption that collective activities were unproductive
and that the role of government was limited to minimal protective functions.
And in the 20th century?
Economics has shifted into applied mathematics, not catallaxy.
They failed to see that in following Keynes, they created incentive for politicians to create budget deficits.
If politics is viewed only as a coercive relationship, then economists must be courageous or callous.
Only when the homo economicus postulate emerges can an economic theory of politics emerge.
Two wings of modern public choice theory:
Modeling politics as exchange (James Buchanan)
Emphasis on modeling all public choosers in strict self-interest terms (Gordon Tullock)